From UBS:
Jean-Sébastien Jacques (J-S) to succeed Sam Walsh as CEO from Jul-16
J-S Jacques (44), Head of Copper & Coal, is appointed Deputy CEO with immediate effect and will become Group CEO on 1-July when Sam Walsh (66) retires. Rio’s Board looked at internal and external candidates, and believes J-S “brings a unique blend of strategic and operational expertise”. J-S says he will “continue to develop the business and pursue the delivery of value for shareholders”. Chris Salisbury, previously COO Coal, is appointed acting Head of Copper & Coal. J-S will be paid a base salary of £1.1m (broadly in line with Sam at A$2.0m) with STIP of up to 200% plus LTIP.
J-S has a good track record with safety and restructuring
Copper division J-S joined Rio in Oct-11 as President of International Copper; he became Head of Copper in Feb-13 and assumed responsibility for Coal in Feb-15. Prior to Rio, J-S was group strategy director for Tata Steel from 2007-11, spent 4yrs as strategy director at steelmaker Corus, and worked at aluminium company Pechiney. At Rio, J-S restructured Copper, exiting Palabora in Dec-12 for $373m, the Eagle project in Jun-13 for $325m, and Northparkes in Jul-13 for $820m, while showing resolve with Mongolian g’ment over Oyu Tolgoi U/G (which was delayed by Rio in Jul-13 due to unresolved issues). He also brought back Kennecott faster than expected after the pit-wall failure in Apr-13.
Expect slight strategy shift towards growth
With the announcement that Jean-Sébastien is to exceed Sam Walsh as CEO of Rio Tinto, the obvious question is, “Should we expect anything different?” In our opinion, not materially. Strategy is signed off by the Board, and with no changes there, cost out is expected to remain a key focus given the current environment. However, with the company in good shape and the new dividend policy providing additional flexibility, we do expect Rio like its peer BHP Billiton to look at acquisitions and take advantage of those companies who find themselves in less fortunate positions and sellers of high quality assets. Rio has growth through Oyu Tolgoi U/G and Amrun Bauxite for the next decade, but could be tempted to add production for the next 5yrs. We see a risk of further management change at Rio over the next 12mths with Chris Lynch (CFO).
And Deutsche:
Jean-Sébastien Jacques to succeed Sam Walsh on July 1
Rio has announced that Sam Walsh will retire as CEO by mid 2016 and will be succeeded by Jean-Sébastien (“J-S”) Jacques, the chief executive of the Copper and Coal division. The departure of Sam Walsh is earlier than we had expected, and the appointment of J-S as CEO has also come as a surprise considering his more limited exposure to investors than other divisional chief executives. In saying that, J-S does have a solid track record of managing Rio’s four key Tier 1 copper assets. Also, his record aligns with Rio’s core strategy of reducing costs, portfolio optimisation and investing in Tier 1 assets. In our view Despite early market doubts, Sam has successfully reset costs, restructured the aluminium division, delivered low capital intensity production growth, and strengthened the balance sheet. J-S now needs to deliver on more structural cost out and grow the business further by building the next wave of high returning projects across copper, bauxite and iron ore. The key equity story from here will depend on J-S’s vision and strategy which will unlikely be delivered until the August results.
Achievements to date
J-S was heavily involved with the approval process and funding of the Oyu Tolgoi underground project in Mongolia, which is a major achievement. He has also managed Rio’s interests in the Grasberg, Bingham and Escondida copper mines, and has overseen considerable asset divestments over the last three years (Palabora, Northparkes, Eagle Nickel, Bengalla and Mt. Pleasant). He has also integrated the copper and coal assets, which has resulted in a significant reduction in overheads. Although his appointment is a surprise due to a lack of exposure to the equity markets, we recognize that J-S’s recent leadership roles in copper (particularly dealing with the Mongolian government on OT) and previous history in the aluminium industry (Pechiney) were likely key factors.
In short, no.
